Different forms of salary Basic salary Taxable. Dearness allowance/pay Taxable. Adoance salary Taxable in the year of receipt i axa is earlier. Arrears of salary Taxable in the year of receipt if not taxed on due basis ea” Leave encashment while in service Taxable. Leave encashment at the time of retirement or at the time of leaving the job itis fully exempt from tax. 1. In case of Government employees, it is exempt from tax to the extent of the 2. In case of non-Government employees, ‘cash eee eave salary in respect of the period of ae at the credit of employee at the time of retirement (which cannot exceed 30 days’ “average salary” for every completed year of service); or b, 10 months “average salary”; or ¢. Amount specified by the Government, iz., Rs. 3,00,000; or d, Leave encashment actually received at the time of retirement. Notes - 1. Government employee for this purpose is a Central Government employee or aState Government employee. 2. “Average salary” for this purpose is to be calculated on the basis of average salary drawn during the period of 10 months immediately preceding the retirement. Salary in lieu of notice Taxable Salary to partner Not chargeable under the head “Salaries” but taxable under the head “Profits and gains of business or profession”. Fees and commission. Taxable, Bonus ‘Taxable on receipt basis if not taxed earlier on due basis, Gratuity 1 Tn case of Govemment employes its uly exempt from lax 2, Incase of non-Government employee covered by the Paymma ity Act, 1972 itis exempt from tax tothe extent of the least of the fellowes ny A 1, 15 days’ salary fc ae Teme Yeat of service (or part thereof exceeding 6 months); c. Gratuity actually received, 3. Incase of non-Government emplo is exempt from tax to the exten a. Rs. 10,00,000f; . Half month's salary for each 6. Gratuity actually received, ted Year of service; or Note" Average salary” for this i alsry drawn during the period of10 mantis tee tulad on the bass of average yee (not covered ity Ac) # t of the least of the ‘allowing ment eee Pension f the employee does not rece” employee has retired, “mmediately preceding the month in which the ‘Uncommuted pensions taxableinal in thecaseofaGovernmentey ases, Commuted pensi from Government, local authority and pee ie anemployee, athe Central Government Sa oontiyes Commute Pention isexempt tothe In the case of non-Governme™" z normal pensi rocttent given below — b. one-half of normal pension ee? if the. 3 ity; ea Pension is exempt from ere receives gratuity; oFPension under new pension scheme in the case of a Govern- tent employee or any other employee joming on or after January 1, 2004 1. Employer's contribution is first included in salary and then a deduction is available (to the extent of 10 per cent of salary) under section 80CCD. 2. Employee's contribution is deductible under section 80CCD to the extent of 10 per cent of sala 5. When pension is received out of the aforesaid amount, it will be taxable in the year Annuity from eniployer of receipt. “Taxable as salary. “Annual accretion to the credit balance in recognized provident fund 1. Excess of employer's contribution over 12% of salary is taxable. _ 2. Excess of interest over notified interest is taxable (notified rate of interest is 9.5 per ‘Retrenchnent compensation cent) Exempt from tax to the extent of Teast of the following = a, Amount calculated” under section 25F(#) of the Industrial Disputes Act; or b. An amount specified by the Government (i, Rs. 500,000). When compensation is paid under any scheme approved by the Central Government, these limits are not applicable and the entire amount is exempt. ‘Remuneration for extra duties Fully taxable under section 15. ‘Compensation received under voluntary retirement scheme Exempt up to Rs. 5 lakh, if a few conditions are satisfied. One of the conditions is the amount payable on account of voluntary retirement or voluntary separation of the (vRs) employees does not exceed (a) the amount equivalent to three months’ salary for teach completed year of service, or (9) salary at the time of retirement multiplied by the balance months of service left before the date of his retirement on superannuation. Relief under section 89 is not available. Salary from UNO Not chargeable to tax Salary received by a teacher? | Not taxable up to 2 years researcher from a SAARC member State Different allowances City compensatory allowance Fully taxable under section 15. “Hlouse rent allowance ‘Exempt from tax to the extent of the least of the following: ‘a. 50% of salary in Delhi, Bombay, Calcutta, Madras or 40% of salary in other cases; . house rent allowance; or ._the excess of rent paid over 10% of salary. Entertainment allowance This allowance i first included in salary and thereafter a deduction is allowed. In the case of Government employees, least ofthe following is exempt from tax : a. Rs, 5,000; b. 20% of salary; or 6. entertainment allowance. Children education allowance Ttis exempt from tax to the extent it does not exceed Rs, 100 per month per child for ‘a maximum of two children (actual expenditure isnot taken into consideration). “Hostel expenditure allowance Ttis exempt from tax to the extent it does not exceed Rs. 300 per month per child for a ‘maximum of two children (actual expenditure is not taken into consideration). Exemp- tionis in addition to the exemption availablein the case of children education allowance. “Transport allowance Tis given oan employee to meet his expenditure or the purpose of commuting between office and residence. In the case of an employee who is blind or deaf and dumb or corthopaedically handicapped, transport allowance is exempt up to Rs. 3,200 per month. In the case of serving Chairman and members of UPSC, transport allowance is exempt from tax without any monetary ceiling, In any other case, exemption is available up to the assessment year 2018-19 and the quantum of exemption is up to Rs, 1,600 per month. “Allowance for transport employees Its given to employees of transport undertaking to meet their personal expenditure during duty performed in the course of running of such transport from one place to another place. The amount is exempt to the extent it does not exceed (2) 70 per cent of the allowance or (B) Rs. 10,000 per month, whichever is lower (actual expenditure is not taken into consideration), “Tribal area allowance Exempt up to Rs, 200 per month in some cases. ‘Couspensation is equivalent to 15 days! “salary” for each year (or part thereof exceeding 6 months) of service. The mode of computation of salary” and length of service for this Purpose and forthe purpose of gratuity (covered unde the Payment of Gratuity Act is sang oPa ‘Travelling allowance, convey- ‘ance allowance, helper allow- ance, research allowance, fic expenditure in performance of duties of ‘These allowances are given to meet specific exp utilized for the specific an office. Exemption is available to the extent the amount 's purpose for which the allowance is given. uniform allowance SJent expenditare is incurred in connection with transfer, ‘Transfer allowance Ttis exempt from tax to the & packing and transportation of personal effects on transfer from one place to another Place. ent to an Indian citizen for Foreign allowance ‘Exempt from tax if paid outside India by the Governm Tiffin allowance rendering service outside India. Taxable. Fixed medical allowance Taxable. ‘Allowance received by a teacher/researcher from a SAARC member State ‘Suamphuary allowance to serving Chiairman/members of UPSC Not taxable up to 2 years. Not chargeable to tax. ‘Allowance to retired Chairman ‘and retired members of UPSC ‘An allowance (Subject to a maximum of Rs. 14,000 per month) for defraying the service of an orderly and for meeting expenses incurred towards secretarial assistance on contract basis, is not chargeable to tax. Perquisites ‘Rent-free unfurnished house } In the case of Government employee (ke, Central Government employee, State Government employee or a Government employee on deputation to a public sector ‘undertaking if house is allotted by the Government): Taxable value is the license fees of the house as per house allotment scheme of the Government. > In the case uf non-Government employees = Ifthe house is owned by employer : Taxable value is 15 per cent of salary of employee of the relevant period (7.5 per cent if population is 10 lakh or less or 10 per cent if population is above 10 lakh but not more than 25 lakh). = Ifhouse is taken on lease by employer : Taxable value is either 15 per cent of the salary or lease rent, whichever is lower. Rent-free furnished house Value of “furniture” will be added to the value of rent-free unfurnished house as computed above. Value of furniture is 10 per cent per annum of cost of furniture to the employer or rent paid/ payable of the furnishing by the employer, as the case may be. Concession tn rent Value of the perquisite in reapect of rent free furnished /unfurnished house will be calculated as given above. From the amount so calculated, rent charged by employer shall be deducted. The balance (ifitis positive) is taxable value of the perquisite in respect of concession in rent. Rent free/concessional furnishedfunfurnished house in special eases » Not chargeable to tax if provided in a “remote area”. » Hotel accommodation/ guest house accommodation provided to an employee is taxable at therate of 24 per cent of salary of the relevant period or hotel tariff; whichever is lower. > Hotel accommodation for 15 days (in aggregate in a previous year) can be provided immediately after transfer at the new location as a tax-free perquisite > Further, ifan employees transferred and housing facility is provided to himat thenew location (he has yet to vacate a house given at the old location), for a period of 90 days immediately after transferred only one house (at the option of the employee at the old location or new location) is chargeable to tax. > Perquisite in respect of rent-free furnished /unfurnished house is not taxable if provided to a High Court Judge, Supreme Court Judge, Union Minister, leader of ‘opposition in Parliament, an official in Parliament and serving Chairman/ members of UPSC. Free domestic sereants ‘Actual expenditure of the employer (as reduced by any amount paid by the employee) isa taxable perquisite in the hands of an employee. Gas, electricity or waler supplied after purchasing ‘from outside agency ‘Actual amount spent by the employer (as reduced by any amount recovered from the employee) is a taxable perquisite in the hands of an employee.